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Recognizing when and how to use Qualified Settlement Funds (QSFs) can significantly enhance the resolution process in your practice. Making critical financial decisions under the pressures of litigation can lead to delays and missed opportunities. A stubborn defendant can also impede crafting a settlement in your client’s best interest.

1. What is a Qualified Settlement Fund?

Often referred to as a QSF, §468B et seq. allows plaintiff’s attorneys and their clients to release a defendant for a cash-only settlement while having them pay into an account that will act as a temporary trust account. This mechanism gives the plaintiffs and their attorneys the time to consider all available options before making distributions.

2. Use of Monies Inside a QSF

Monies held in a QSF can be paid in cash, fund a structured settlement, attorney fee structure annuity or assignment, and settle liens or allocation issues between parties. A QSF can also hold the funds to prevent constructive receipt and preserve pre-settlement options while considering financial options or establishing other entities, such as a special needs trust.

3. Variety of Cases Utilizing QSFs

QSFs are utilized in a wide range of case types with one or multiple plaintiffs and at almost any stage of the litigation process – even after trial.

4. Uncooperative Adversary

Every plaintiff’s attorney has encountered a claim representative or defense attorney who can make things more difficult than they need to be. In such situations, getting the necessary cooperation to achieve a structured settlement, attorney fee structure, or assignment can be highly unlikely. The solution is to replace the claim representative and their attorney with a QSF. The defense gets a full and final release without any further obligations by paying the funds necessary to resolve the case into a QSF.

5. Clients Needing More Time

After negotiating an excellent result for your clients, the pressures of litigation finally come to an end, but at this time, your clients have to make one of the most important financial decisions of their lives: how to receive their settlement and what to do with it. The solution to this predicament is creating a holding pattern called a “safe harbor tax limbo” using a QSF.

6. The Lien That’s Holding Everything Up

A sizable lien can drastically change your client’s settlement options and financial situation. There are also risks that your client’s needs could change, new facts may arise, or the offer goes away. The solution is to remove the defense from the equation and settle the case with a QSF.

7. The Complexity of Multiple Defendants

Resolving a case against one defendant is difficult enough, so the complexity is compounded when multiple defendants exist. The solution to this problem is establishing a QSF to accept individual transfers (funding) while irrevocably releasing each defendant from further liability.

8. Conflicting Interests of Multiple Claimants

Representing multiple claimants can create conflicts of interest – especially regarding the division of settlement proceeds. The solution is to pay the funds into a QSF, release the defense, and allow designated professionals to be “in the middle.”

9. How to Establish a QSF

For such a helpful tool, the requirements to establish a QSF are surprisingly few:

• A “governmental authority” must approve the QSF
• Its purpose must be to resolve or satisfy claims as allowable under §1.468B-1
• It must qualify as a trust under state law

TIP: Platforms like QSF 360 provide an online turnkey solution as quickly as one business day.

10. The Process of Establishing a QSF

The process starts by contacting a professional well-versed in establishing QSFs and their administration. A comprehensive settlement planner experienced in your area of law, or directly utilizing QSF 360 yourself, is a great place to start. An experienced, qualified professional will help coordinate all efforts to establish a QSF to resolve your case and involve the appropriate parties while managing the process so you don’t have to.

11. QSF Ready to Accept Assets

Once approved, the QSF trustee assumes the administration duties. The QSF is now ready to accept assets from a transferor (defendant or defense carrier) and provide the transferor with a complete release of liability. Once the funds transfer occurs, the transferor can claim a tax deduction equivalent to the traditional claim satisfaction.

12. Conclusion on Utilizing QSFs

The ultimate recoveries you obtain for your clients are a testament to your hard work representing them, and a QSF can help ensure that your clients have every opportunity to create solid settlement plans to maximize those recoveries. Recognizing when and how to utilize Qualified Settlement Funds (§1.468B-1 et seq.) adds a valuable resolution tool to your practice, reducing liability exposure while protecting your client’s financial best interests and thus fulfilling your duties to act in your client’s best interests.

Qualified Settlement Funds (QSFs) are powerful financial tools designed to provide flexibility and tax efficiency in complex dispute resolution scenarios. These funds are instrumental when plaintiffs and defendants negotiate a settlement but cannot agree on tax language or reporting specifics. In this comprehensive guide, we'll explore the origins, benefits, and practical applications of QSFs and the implications for various stakeholders involved in the settlement process.

Section 1: Origins of Qualified Settlement Funds

Qualified Settlement Funds originate from Section 468B of the Internal Revenue Code. This section was introduced as part of the Tax Reform Act of 1986 to streamline the settlement process in multi-plaintiff lawsuits. Initially, QSFs were predominantly used for class actions and other complex cases involving multiple plaintiffs. However, their use has expanded to include various legal disputes, from personal injury cases to breach of contract claims.

Section 2: Establishing a Qualified Settlement Fund

Establishing a QSF is a relatively straightforward process. The fund must satisfy three fundamental requirements:

• It must be established under the jurisdiction of a governmental authority, which will also exercise ongoing supervision over the fund.
  
• The fund must be set up to resolve or satisfy one or more legal claims. These can range from tort claims to violations of law.
  
• If established as a trust, the fund must qualify as a trust under applicable state law, necessitating a trust agreement and trustee.
  

Section 3: Tax Implications for Defendants

When defendants contribute to a QSF, they can immediately claim a tax deduction for the settlement payments. This feature is a significant benefit, as under ordinary tax rules, defendants cannot claim a deduction until the plaintiff receives the money. A QSF effectively creates an exception to these rules, allowing defendants to claim deductions even if the funds remain tied up in the QSF for an extended period.

Section 4: Tax Treatment of Qualified Settlement Funds

The tax treatment of QSFs is relatively straightforward. The IRS assigns a QSF its own Employer Identification Number (EIN). The QSF is taxed separately but not on the money contributed by the defendants. Instead, it is taxed on the earned income, such as interest and dividends. However, the QSF can deduct certain expenses, often resulting in no tax due.

Section 5: Benefits of Using Qualified Settlement Funds

QSFs offer myriad benefits for all parties involved in the dispute resolution process. For defendants, they provide an opportunity to claim tax deductions immediately and remove themselves from ongoing litigation. For plaintiffs, they offer time to make crucial decisions regarding the allocation of settlement funds, the negotiation of lien claims, and the implementation of financial planning strategies. Moreover, QSFs facilitate the resolution of disputes among multiple plaintiffs and lawyers, contributing to an efficient and fair settlement process.

Section 6: Qualified Settlement Funds and Structured Settlements

Structured settlements, which involve payments made over time, can also be facilitated through QSFs. These settlements can offer tax, financial planning, and asset protection advantages. Notably, a QSF allows the timing of a structured settlement to be delayed until after the defendant is out of the picture. This feature allows plaintiffs to consider the various financial options available to them, including the form of structure, the exact annuity payout, and family needs.

Section 7: The Role of Trustee in Qualified Settlement Funds

The trustee of a QSF plays a critical role in managing the fund. Almost anyone who is not a minor or legally incompetent can serve as a trustee. While the trustee does not need to be a trust company or specialist, they need to be able to manage the QSF's assets responsibly, as the trustee is responsible for making distributions from the QSF to claimants, dealing with any liens, and arranging structured settlements, as necessary.

Section 8: The Duration of Qualified Settlement Funds

There is no explicit limit on the duration of a QSF. In simple cases, a QSF may exist for a few months, providing enough time to resolve lien issues, determine the allocation of funds, and consider structured settlement options. A QSF may need to exist for several years in more complex cases. The needs of the QSF, including but not limited to ongoing disputes regarding the distribution of funds and related factors, should dictate the duration of a QSF.

Section 9: The Use of Qualified Settlement Funds in Different Types of Claims

QSFs can be used to resolve various legal claims, including those arising from tort, contract breach, or other violation of law. However, there are certain types of claims where using a QSF is prohibited, such as liabilities arising from a workers' compensation act, obligations to refund the purchase price of products sold in the ordinary course of business, and liabilities related to bankruptcy cases or workouts.

Section 10: The Role of Qualified Settlement Funds in Tax Planning

Contrary to some misconceptions, forming a QSF does not complicate tax planning for plaintiffs. A QSF can enhance the plaintiff's chances of achieving the desired tax treatment. When plaintiffs and defendants cannot agree on tax language or reporting specifics, a QSF can bridge these difficulties, allowing the plaintiff to negotiate the appropriate tax reporting with a neutral party, such as the QSF trustee.

Section 11: Conclusion

Qualified Settlement Funds afford the defendant immediate tax deductions and are a flexible tax-efficient tool that can facilitate smooth and equitable dispute resolution. By providing a “safe harbor” for settlement funds during the allocation and planning phase, QSFs enable all parties to navigate complex settlements more effectively. Whether you're dealing with a multi-plaintiff lawsuit, a complicated personal injury case, or a contentious contract dispute, a QSF could be an essential part of your strategy.

Overview

When receiving a settlement or judicial award from a lawsuit, many plaintiffs are often surprised when they discover they must pay taxes on the proceeds. The confusion surrounding the tax implications of lawsuit settlements is compounded by the fact that the income tax rules can be complex and vary depending on the nature of the case and the state in which one resides. This article shall demystify the tax treatment of lawsuit settlements, highlighting the key factors determining these awards’ taxability, explaining why taxes on lawsuit settlements are higher than one may think, and how to avoid paying taxes on settlement money.

We also discuss strategies you can employ to minimize your tax liability in our next article in this series, How to Minimize Tax Liability on Lawsuit Settlements or Avoid Paying Taxes on Settlement Money.

Understanding the Origin of the Claim

One crucial aspect to consider when it comes to the taxation of lawsuit settlements is the origin of the claim. The IRS bases the taxation of settlement awards on the nature of the underlying claim. For instance, if you sue for wages after being laid off, the settlement amount will be taxed as wages. On the other hand, if you sue for damage to your property caused by a negligent contractor, the damages may not be considered income and may be treated as a reduction in the property's purchase price.

It’s crucial to note that the tax treatment of settlement awards is subject to exceptions and nuances. Therefore, it is essential to carefully evaluate how your particular settlement will be taxed, especially in light of recent tax reforms.

Tax-Free vs. Taxable Damages

Recoveries for physical injuries and sickness are generally tax-free, while damages awarded for emotional distress are not automatically tax-exempt. Before 1996, all personal damages, including those for emotional distress, were tax-free. However, the tax code was amended to require that injuries be “physical” to qualify for tax-free treatment. If you sue for intentional infliction of emotional distress, your recovery will be subject to taxation. Recoveries for physical symptoms of emotional distress, like anxiety, sleepiness, stomachaches, and headaches, are also taxed. It’s essential to navigate these distinctions carefully to ensure proper tax reporting.

Allocating Damages to Optimize Taxation

In many legal disputes, multiple issues are at play, and the settlement may involve various types of consideration. It is often possible for the plaintiff and defendant to agree on the allocation of damages, which can have significant tax implications. While these agreements are not binding on the IRS or the courts, they are usually considered. By strategically allocating damages, plaintiffs can potentially minimize their tax burden and optimize the overall tax treatment of their settlement.

The Tax Trap of Attorney Fees

One of the most significant tax traps for plaintiffs is the treatment of attorney fees. Suppose you are a plaintiff represented by a contingent fee lawyer. In that case, the IRS considers you to have received 100% of the money recovered, even if the defendant pays your lawyer directly. This “tax doctrine” means that, in most cases, you will be taxed on the entire settlement amount, even if a portion goes to your attorney. For example, if you settle a lawsuit for $100,000, and your lawyer takes $40,000 as a contingency fee, you will still be taxed on the total $100,000.

It’s worth noting that before 2018, there were two ways to deduct attorney fees: above the line and below the line. However, the Tax Cuts and Jobs Act of 2017 eliminated below-the-line deductions for legal fees, leaving above-the-line deductions as the only remaining option. These deductions are available for employment claims and specific whistleblower claims. Seeking early tax advice before settling a case is essential to understanding the potential tax implications of your settlement and the attorney fee portion.

TIP: There is an effective solution for many circumstances – the Plaintiff Recovery Trust – but it must be in place before the settlement or judicial award is finalized.

The Taxation of Punitive Damages and Interest

Unlike compensatory damages, which may be tax-free in certain circumstances, punitive damages and interest are always taxable. If you receive a settlement or judgment that includes compensatory and punitive damages, the compensatory portion may be tax-free, while the punitive portion will be fully taxable. It’s important to distinguish between the different types of damages when assessing your tax obligations. Additionally, interest received before or after a judgment is also subject to taxation and can complicate the overall tax treatment of a settlement.

Exceptions and Nuances in Sexual Harassment Cases

The recent #MeToo movement has brought increased attention to sexual harassment cases, and there are new wrinkles in the tax treatment of these settlements. While the tax reform law generally does not impact plaintiffs suing their employers, there are exceptions and nuances to consider. It’s essential to consult with a tax professional experienced with the specific tax laws and regulations surrounding sexual harassment cases to ensure accurate tax reporting.

The Importance of Proper Reporting and Documentation

Regarding taxes on lawsuit settlements, proper reporting and documentation are crucial. Defendants are usually required to issue IRS Form 1099 to plaintiffs for the total settlement amount unless the settlement qualifies for an exemption. To protect your tax position, it’s crucial to negotiate tax language in the settlement agreement to explicitly state the tax treatment of the settlement and address the issuance of Form 1099. By addressing these details upfront, you can avoid potential tax complications.

Strategies to Minimize Tax Burden

While the tax implications of lawsuit settlements may seem overwhelming, there are strategies that plaintiffs can employ to minimize their tax burden. These strategies may include proper allocation of damages, strategic negotiation of the settlement agreement, and careful consideration of the timing of payments and reporting. Working closely with a knowledgeable tax advisor can help ensure that you maximize your tax benefits and minimize any potential tax liabilities associated with your settlement.

Seeking Expert Guidance

Given the complexity and ever-changing nature of tax laws, seeking expert guidance is advisable when navigating the tax implications of lawsuit settlements. A qualified tax professional can assist you in understanding the specific taxation rules and regulations that apply to your case, ensuring that you meet your tax obligations while optimizing your tax position. With their guidance, you can navigate the intricacies of tax reporting and make informed decisions to minimize your tax burden.

Conclusion

Taxation of lawsuit settlements is a complex area that requires careful consideration and expert guidance. Understanding the origin of the claim, differentiating between tax-free and taxable damages, and properly reporting attorney fees and other settlement components are crucial to ensure compliance with federal and state income tax laws. In many circumstances, the Plaintiff Recovery Trust may assist in minimizing the tax burden.

One should take proactive steps to optimize one's tax position and always seek professional tax advice to confidently and competently navigate the tax implications of lawsuit settlement taxation.

Qualified Settlement Funds (QSFs), also known as 468B Trusts, provide an efficient and effective tool for resolving litigation involving a single claimant or multiple claimants. They offer a valuable option for defendants and claimants, allowing for time-sensitive resolution while maintaining financial and legal advantages. This article delves into the world of QSFs, discussing their benefits, applications, and the services related to their administration.

QSFs: An Overview

A QSF is an account or trust set up to settle one or more claims resulting from a tort, contract breach, or other violation of the law. The fund must be established pursuant to an order or approval from the United States, any state, state agency, or political subdivision, including courts of law, and must be subject to the continuing jurisdiction of the same. As a statutory trust created by a governmental authority, a QSF must also qualify as a trust under state law or keep its assets separate from the transferor's.

Unveiling the QSFs' Origin

The Qualified Settlement Fund originated from the Designated Settlement Fund concept introduced in 1986. This concept enabled defendants to deduct amounts paid to settle class action multi-plaintiff lawsuits before agreeing on how these amounts would be allocated individually. The §1.468B-1 et seq QSF was officially promulgated in 1993 to simplify the settlement and administration of settlements and judicial awards, and has since found popularity as a vehicle to settle cases involving multiple and single claimants.

The Role of QSFs in Legal Settlements

When established, a QSF assumes the liability from the defendant before the settlement is final, at which time the defendant is dismissed with prejudice. The QSF then stands in the shoes of the defendant with the plaintiff until all negotiations are final. This process may include negotiations with the plaintiff(s), healthcare providers with enforceable liens, and others, including government entities, with possible claims on the potential proceeds, and includes addressing legal (and other) experts' fees and costs.

Benefits for Defendants

There are several advantages of QSFs to the defendant's side:

• Release of Liability: Upon funding the QSF, the defendant receives a full release of all claims, effectively closing the case for them with no tail liability.
  
• Immediate Tax Deduction: The defendant can deduct the payment made into the QSF from their taxable income immediately.
  
• End-of-Year Tax Planning: QSFs can be helpful in end-of-year financial planning, allowing the defendant to establish a paid loss if settlement negotiations stretch to past year's end.
  

Benefits for Claimants

On the other side, QSFs also present significant benefits to claimants:

• Time for Consultation: Claimants gain time to receive a proper settlement consultation and to decide on their best settlement options.
  
• Lien Resolution and Documentation: The added time allows for lien resolution and the preparation of required documentation without the time pressures of litigation.
  
• Interest Accumulation: Claimants can benefit from the interest accumulation of funds within the QSF, particularly if the distributions are not immediate.
  
• Risk Mitigation: Getting the settlement award early eliminates the risk of insolvency of the defendant or its insurer.
  
• Flexibility: Plaintiffs have more flexibility in making appropriate choices for settlement distribution in cash, structured settlements, or special needs trusts to preserve Medicaid and Supplemental Security Income (SSI).
  

Services Associated With QSFs

Several services are associated with the administration of QSFs. These can include:

• Preparation of all documents needed to establish and administer the fund.
• Generation of client closing statements and provision of accounting for the fund.
  
• Disbursement of all claimant payments.
  
• Live call center assistance.
  
• Attorney fee and expense disbursement.
  
• Execution of qualified assignments.
  
• Management of payment of finalized liens.
  
• Provision of educational materials for claimants.
  
• Bankruptcy and probate coordination.
  
• Fraud protection.
  
• Daily account reconciliation, monthly financial accounting, and reporting.
  
• Treasury management of funds within the QSF.
  
• Tax return filings and 1099 issuance.
  
• Closure of the fund and interest reconciliation.
  

Platforms like QSF 360 offer low-cost turnkey solutions to establish a QSF in as little as one business day, including the integrated administration of the QSF.

Use Cases for QSFs

QSFs are helpful in various scenarios, including:

• Single event and single plaintiff QSFs.
  
• Mass tort and class action cases.
  
• Mass arbitration cases.
  
• Environmental (CERCLA) lawsuits.
  
• Cases involving one or more claims or plaintiffs when there is a dispute over the allocation of the settlement or judicial award among the parties.
  

Precautions While Using QSFs

While QSFs offer numerous benefits, it is crucial to exercise caution:

• Not all litigation qualifies for a QSF. It is essential to understand when it is appropriate to use them.
  
• In some cases, using a single-claimant QSF might limit the choices for structured settlement annuity providers.
  
• Partnering with an experienced, insured, independent QSF licensed trustee (fiduciary) ensures compliance with all formalities.
  
• Unrelated cases co-mingled into a Firmwide QSF do not meet the requirements of 1.468B-1 et seq. (see Firmwide Qualified Settlement Funds - What Can Go Wrong? Part 1 and Part 2)
  

In conclusion, QSFs offer a valuable solution for resolving complex litigations. By understanding their benefits, applications, and associated services, you can utilize them effectively. Visit our Resource Library of articles related to various topics associated with Qualified Settlement Funds.

For more information about QSFs, contact us at (855) 979-0322.

Overview

Trusts are financial vehicles that can provide numerous benefits, including asset protection, protecting government benefits, tax advantages, and controlling the distribution of the trust’s assets. However, one often overlooked aspect of trust management is the impact of trustee fees on the overall value of the trust. While trustee fees are important for all trusts, the impact of fees is especially relevant for Special Needs Trusts (“SNTs”) and Settlement Protection Trusts (“SPTs”).

What Are Trustee Fees?

Trustee fees are costs associated with the administration and management of a trust. These costs can range from standard administrative operations to more complex financial tasks, and they can significantly impact the overall value of the trust over time.

Trustee fees are a necessary cost of conducting trust operations. However, if not properly managed, these fees can significantly eat into the value of the trust.

Note: An attorney has an ethical duty to ensure that he or she is always acting in the best interest of its client(s). This duty applies to the safeguarding of clients’ assets and other property, and by extension, an attorney must ensure trustee fees for a trust holding any client assets are reasonably commensurate. As such, best practice would necessitate having documentation that demonstrates that comparative due diligence was exercised by an attorney before the execution of any trust instrument. This position is bolstered by various courts’ recent application of fiduciary duties to individuals and circumstances to which such duties have not traditionally applied.

Why Do Trustee Fees Matter?

Trustee fees might seem minor at first, but over time they, can significantly reduce the value of the trust. These costs are typically deducted directly from the trust’s assets, reducing the funds available for distribution to beneficiaries.

The impact of trustee fees is especially significant in the case of ongoing trusts that operate over several decades. In such cases, even small fees can compound over time, substantially reducing the trust’s value.

The long-term impact of trustee fees on a trust’s value underscores the importance of understanding and managing these costs.

Transparency

Not all trustees are equally transparent regarding fees; in particular, trustees that charge primarily on a time and billing basis have an open road to impose fees that may be more than the grantor would have agreed to had the total amount been fully disclosed. Time-based billing should be limited to “extraordinary” events and not part of ordinary trust administration.

The trustees’ fees should be fully transparent and detailed within the trust documents.

Also, so-called “Pooled Trusts” often fail to fully disclose all fees, particularly the fees associated with the investment pool.

Unlike licensed fiduciaries, Pooled Trusts are unregulated and have no supervising government agency that oversees or examines their activities. Unregulated financial entities expose clients to a greater risk of financial loss.

How Are Trustee Fees Calculated?

The calculation of trustee fees can vary depending on the specifics of the trust and the jurisdiction in which it operates. Some trustees may charge a flat fee for their services, while others may charge a percentage of the trust’s assets. Other trustees have fixed or base annual fees, dramatically increasing the effective fee rate over time as the trust holds fewer assets.

Sometimes, the trust document itself may specify the trustee’s compensation. However, if the trust document does not guide this matter, you may have little recourse to limit fees as the trustee is typically entitled to “reasonable compensation” for their services.

Determining what constitutes “reasonable compensation” can be a complex matter, and it often involves consideration of several factors that typically require a court to resolve, including:

• The size and complexity of the trust;
  
• The amount of work involved in administering the trust;
  
• The trustee’s level of expertise and experience; and
  
• Local standards for trustee compensation.
  

Accordingly, the best practice is always to require a fully disclosed and incorporated fee schedule within the trust documents.

Trustee Fees: A Case Study

Consider a trust with a stable value of $1,500,000. If the trustee charges a fee of 1.46% annually (the national average trustee fee according to some sources) the fees would amount to $14,600 annually. Over 20 years, these fees would total $292,000 – or almost 19.5% of the trust’s initial value.

Furthermore, this calculation does not consider the opportunity cost of these fees. In other words, if not consumed in fees and invested, the funds used to pay trustee fees would generate additional returns for the trust.

By comparison, a trustee fee of 0.65% would save $195,000 over 20 years and reduce the effective trustee fee rate even further with the added investment gains.

This example illustrates the potential impact of trustee fees on a trust’s value and the importance of carefully considering these costs when setting up and managing a trust.

Strategies for Managing Trustee Fees

Given the potential impact of trustee fees on a trust’s value, attorneys, trustees, and beneficiaries must manage these costs actively. Here are some strategies that can help:

• Negotiate trustee fees: Just like any other professional service, the fees charged by trustees are often negotiable. Don’t be afraid to discuss trustee fees and negotiate a fair and reasonable rate, given the trust’s complexity and size.
  
• Shop around: Before selecting a trustee, comparing fees and services offered by different trustees can be beneficial. Thus, comparing trustee fees can help you find a trustee offering the best service value.
  
• Consider a corporate trustee: While they may charge higher fees, they often offer higher expertise and can handle more complex tasks, potentially saving money in the long run.
  
• Select a Trustee who is a technology leader: A trustee who utilizes modern software and technology can automate many administrative tasks, reducing the time and effort required to manage a trust and potentially lowering trustee fees.
  

Conclusion

While trustee fees are a necessary part of trust administration, they can significantly impact the overall value of a trust if not properly managed. By understanding the trustee fees and implementing strategies to address these costs, trustees and beneficiaries can help ensure that trusts continue to serve their intended purpose without being unduly eroded by fees.

The importance of careful management of trustee fees underscores the value of professional advice in trust administration. Whether you are a trustee or a beneficiary, working with an experienced team of professionals can help navigate the complexities of trust administration and ensure the trust is efficiently and cost-effectively managed.

Additional Information

For more detailed information on trustee fees and how they can impact a trust, visit www.easternpointtrust.com. We can provide solutions tailored to your situation and fully transparent information about trust administration.

Finally, remember that trust administration is a complex process that requires attention to detail, a strong understanding of financial and legal concepts, and a commitment to acting in the best interests of the trust’s beneficiaries. By educating yourself about the process and seeking professional advice when needed, you can help ensure that your trust serves its intended purpose and provides for your loved ones in the most effective manner possible.

Seek brands that maintain a formal professional tone and utilize technical, regulatory, and financial terms throughout communications. The style conveys authority, expertise, and dependability, aiming to resonate intellectually with its audience. The brand persona reflects a knowledgeable industry leader committed to educating and guiding clients through complex financial matters.

When you secure a financial settlement from a lawsuit, it's crucial to understand the associated tax implications. There are two primary types of damages you could receive from a lawsuit: compensatory and punitive. Each of these damages has different tax implications, which we will explore in this article.

Overview of Lawsuit Settlements

Lawsuit settlements are financial awards granted to plaintiffs to compensate for their losses and/or to punish the defendant for their actions.

Types of Lawsuit Damages

Compensatory Damages

Compensatory damages compensate the plaintiff for the actual losses sustained due to the defendant's actions. These damages aim to restore the plaintiff's financial status as if the incident leading to the lawsuit had not occurred.

Economic Damages

Economic damages are quantifiable monetary costs incurred by the plaintiff. These include medical expenses, property damage, and lost wages due to missed work.

Non-Economic Damages

Non-economic damages cater to intangible losses such as pain and suffering, mental anguish, and decreased quality of life. Assigning a monetary value to these damages can be challenging as they are subjective and vary from case to case.

Punitive Damages

Punitive damages punish the defendant for reckless behavior and deter others from committing similar acts. They are usually awarded in cases where the defendant's conduct was particularly egregious.

Tax Implications of Lawsuit Settlements

Taxability of Compensatory Damages

The reason for the award determines the taxability of compensatory damages. Generally, compensatory damages for physical injuries are not taxable income, implying that you do not need to report it as taxable income if your lawsuit settlement includes compensatory damages for bodily injuries.

However, non-physical injuries such as emotional distress, defamation, and humiliation are typically taxable income. See Plaintiff Recovery Trust for solutions to reduce taxation on settlements and Understanding Intricacies of Plaintiff Taxation.

Taxability of Punitive Damages

Unlike compensatory damages, punitive damages are always taxable, regardless of the reason for the award. They must be reported as "Other Income" when filing taxes. See Plaintiff Recovery Trust for solutions to reduce taxation on settlements and Understanding Intricacies of Plaintiff Taxation.

Tax Planning for Lawsuit Settlements

Tax planning is crucial before settling a lawsuit to avoid surprise tax bills. It's essential to know the breakdown of your settlement, and understand which portions of the damages are compensatory and which are punitive, for tax purposes.

Allocation of Damages

It's possible to allocate damages into compensatory and punitive categories to optimize tax treatment. While this allocation does not bind the IRS, the IRS usually does not ignore these agreements.

Attorney Fees and Taxes

If you hire a contingency fee lawyer, 100% of the money recovered is considered received by you for tax purposes, even if your lawyer takes a percentage off the top. Thus, you will be liable to pay taxes on the entire settlement amount, not just your share after attorney fees.

Conclusion

Understanding the tax implications of your lawsuit settlement can help you plan your finances better and avoid potential tax liabilities. It's always a good idea to consult with a tax professional or attorney to understand the tax implications of any damages you may receive.

And remember, the tax treatment of damages can be complex. So, having a knowledgeable industry leader to guide you through these complex financial matters is invaluable.

In the complex financial landscape of litigation settlements and judicial awards, Qualified Settlement Funds (QSFs) present a robust solution that simplifies the process for all parties involved. This article comprehensively explains what “QSF” means, the legislative background, how they function, their advantages, and costs.

I. Definition of “QSF”

A “QSF,” or Qualified Settlement Fund, is a specialized trust or fund established under state law primarily dedicated to holding the proceeds from a legal settlement and are also referred to as Qualified Settlement Trusts, 468B Trusts, or 468B funds. The term “468B” originates from Section 468B of the Internal Revenue Code, which authorizes establishing these funds. When created as a trust, a QSF is a Statutory Trust established by the governmental authority.

II. Legislative Background of Qualified Settlement Funds

Qualified Settlement Funds first emerged as part of the Tax Reform Act of 1986. Initially, the law introduced Designated Settlement Funds (DSFs), designed for insurance companies to transfer money to settle claims. However, DSFs had limited applicability and flexibility, leading to the introduction of Qualified Settlement Funds in 1993 through Treasury regulations. Unlike DSFs, QSFs have broader applications and increased flexibility, making them a popular choice in all tort litigation and other cases, whether complex or straightforward.

III. The Three Essential Requirements of a QSF

According to Treasury Regulation 1.468B-1(c), a fund must meet three critical criteria to qualify:

1. Legal Recognition and Jurisdiction: The fund must be approved by a federal or state agency, and it should be subject to the continuing jurisdiction of that agency.
   
2. Purpose of Resolution: The fund must exist to resolve or satisfy one or more claim(s) resulting from an event or series of related events that has led to said claim(s).
   
3. Nature of Claims: The claim(s) should arise out of a tort, breach of contract, or violation of a law, and the fund should be created as a trust under applicable state law.
   

IV. How Qualified Settlement Funds Work

A QSF simplifies the litigation settlement process by providing a structure that benefits both plaintiffs and defendants. The defendant or their insurance company transfers the agreed-upon settlement amount into the fund. Upon transfer, the defendant can claim an immediate tax deduction for the total amount and released from further liabilities associated with the lawsuit.

Once the defendant is released from the case, the QSF allows for the resolution of post-litigation issues. These can include allocation of settlement amounts between different plaintiffs, negotiation of liens, and planning for the settlement’s financial impact. The 468B fund acts as a temporary holding tank for the settlement proceeds until all allocation issues are resolved, and all funds are disbursed.

V. Advantages of Using a Qualified Settlement Fund

There are several advantages to using a QSF in a litigation settlement:

1. Defendant’s Perspective: From the defendant’s perspective, the fund provides an opportunity to end litigation quickly. The defendant gets a complete release from the case once they fund the trust, and they also benefit from an immediate tax deduction.
   
2. Plaintiff’s Perspective: A QSF offers flexibility and time for the plaintiffs. They can allocate the settlement amounts among themselves, negotiate liens, and plan for the financial implications of the settlement without the pressure of immediate disbursement.
   
3. Attorney’s Perspective: Attorneys can also benefit from a settlement fund. For example, they can immediately receive their fees and costs from the fund and preserve the attorney’s option to structure their fees.
   

VI. Considerations

Despite its advantages, establishing a QSF can come with one minor downside: the cost involved. However, using a low-cost platform like QSF 360 makes settlement trusts fast and affordable. Unlike QSF 360’s low costs, other vendors’ costs can include high fees for drafting the trust document, administration fees, filing fees, administration fees, court costs, attorney fees, and potential CPA fees for preparing tax returns.

VII. Tax Considerations

There are several key tax considerations:

1. Economic Performance: The defendant can claim an immediate tax deduction upon transferring funds into a 468B trust, signaling that economic performance has occurred.
   
2. Constructive Receipt: The transfer of funds into the QSF does not trigger constructive receipt, which means that a taxpayer’s receipt of income is subject to limitations.
   
3. Taxation of QSF: The fund’s taxation is on its modified gross income, which excludes the initial transfer of money. All income is taxed at the same rate, with no lower brackets.
   

VIII. The Role of the QSF Administrator

Regulations require the appointment of an “Administrator,” which is usually selected by the plaintiff’s attorney. The QSF Administrator is responsible for distributing funds to satisfy the defendants’ obligations to the claimants, state Medicaid agencies, CMS for Medicare liens, ERISA plans, etc. Also, structured settlements, including making a §130 Qualified Assignment, are available from insurance companies or third parties who shall make periodic payments.

IX. Single Claimant QSF

So-called Single Claimant QSFs have become widely accepted, and several recent court cases have affirmed their use in single-plaintiff cases. While some naysayers oppose the idea of a Single Claimant QSF, during the last 30 years (or the life of 468B), the IRS has not made any known adverse finding or taken any adverse action against any “Single Claimant” settlement fund. Finally, the leading commentator on 468B finds no basis for the Single Claimant QSF myth. (See Actually, Single-Claimant Settlement Funds Are Valid)

X. Conclusion

In conclusion, “QSF” means a “Qualified Settlement Fund” that provides a strategic solution for managing litigation awards and settlements. They offer a structured approach that benefits all parties involved, simplifying the process and providing time for careful planning and negotiation. Their benefits make them a valuable tool in the litigation process.

Follow the associated link to learn more about QSFs.

For more information, contact us at (855) 979-0322.

The taxation of plaintiff litigation recoveries often induces confusion, yet understanding it is indispensable. Especially significant are the implications of the “double tax” issues. This article explores this intricate topic, focusing on the landmark case of Commissioner v. Banks.

1. Decoding the Complexities of Plaintiff Litigation Recoveries

1.1. Taxation of Personal Injury Plaintiff Litigation Recoveries

The tax implications are not always straightforward when dealing with litigation recoveries. While compensatory and related emotional distress damages for physical injuries are tax-free, other related non-personal injury components, including punitive damages and interest, are taxable.

1.2. Tax Implications for Other Types of Recoveries

In many other plaintiff recoveries, the situation becomes more complicated. These include (but are not limited to) non-physical injuries such as emotional distress, defamation, breach of contract, malpractice, fraud, and intellectual property violations. In these instances, the recoveries are typically taxable.

1.3. Deductions and Legal Fees

Surprisingly, many individual plaintiffs receiving taxable recoveries cannot deduct their legal fees. These fees are considered “miscellaneous itemized deductions,” which are nondeductible according to the Internal Revenue Code §67(g). Only limited exceptions exist, making it crucial for plaintiffs to understand whether the IRS permits deducting their attorney fees.

2. The Double Tax Phenomenon: Commissioner v. Banks

2.1. Overview of the Case

The double tax issue arises from the 2004 U.S. Supreme Court ruling in Commissioner v. Banks. (Commissioner v. Banks, 543 U.S. 426 (2005)). This case established that plaintiffs must include the attorney fee portion of their taxable recovery in income, resulting in a “double tax.” As a result of Commissioner v. Banks, in contingent fee cases, plaintiffs must generally recognize gross income equal to one hundred percent (100%) of their recoveries, even if the attorney is paid directly by the defendant and the plaintiff receives only a settlement payment net of the attorney fees. This strict tax rule generally requires plaintiffs to devise a method for deducting their 40 percent (or other) contingency fee and other attorney costs.

2.2. The Implications of the Ruling

In taxable cases where the attorney fee is not deductible, the plaintiff and the attorney pay tax on the attorney fee portion of the recovery. This double taxation can significantly reduce plaintiffs' recovery, especially those in high-tax jurisdictions. In extreme cases, such as high-tax states like New Jersey, New York, and California, plaintiffs may end up with little or nothing (sometimes less than 15% of the gross settlement) after paying their lawyer and offsetting case expenses and taxes.

3. The Role of Defendants and Plaintiff Lawyers

3.1. The Responsibilities of Defendants

Defendants in taxable cases are also subject to significant penalties if they fail to issue a 1099 or exclude the attorney fee portion. The penalty could be 10% of the unreported amount, without limit, according to IRS Regulation 1.6041-1(f) and IRC §6722(e). This point is critical and frequently misunderstood or ignored, as the plaintiff should expect the defendant to be unwilling to ignore or “fudge” any tax treatment reporting.

3.2. Ethical Guidelines for Plaintiff Lawyers

The American Bar Association advises that competent representation of plaintiffs requires considering the tax implications of the settlement. It’s an ethical obligation for personal injury lawyers to inform clients about the taxation of the litigation proceeds and the consequences of not addressing taxes properly or seeking competent tax advice.

4. Potential Pitfalls in Reducing Plaintiff Recovery Taxes

Many suggested ways of minimizing plaintiff recovery taxes are ineffective. These include reporting only the portion of the recovery received by the plaintiff to the IRS, treating the attorney-client relationship as a partnership or business, excluding the structured part of the attorney’s fees, or improperly treating the claims as “civil rights” violations. These strategies fail to work and expose the plaintiff to severe penalties and interest and the possibility of tax fraud allegations if discovered by the IRS.

There is a deduction in the Internal Revenue Code that allows plaintiffs in employment and civil rights lawsuits to be taxed on their net recoveries (i.e., the attorney fees and costs for these types of cases are deductible). The limit results in no problem where all legal fees are paid in the same tax year as the recovery. However, the issue remains if the plaintiff paid hourly legal fees over more than one year. In such an event, there is no income to offset, so one cannot deduct the legal fees above the line. An aggressive approach – unlikely to withstand review - would have the lawyer pay back the prior fees and have the lawyer charge them once again in the tax year of the settlement.

This above-the-line deduction only applies to attorney fees paid because of “unlawful discrimination” claims as defined by Code §62(e). The definition of “unlawful discrimination” only includes claims brought under the following federal statutes:

• Civil Rights Act of 1991;
  
• Congressional Accountability Act of 1995;
  
• National Labor Relations Act;
  
• Fair Labor Standards Act of 1938;
  
• Age Discrimination in Employment Act of 1967;
  
• Rehabilitation Act of 1973;
  
• Employee Retirement Income Security Act of 1974;
  
• Education Amendments of 1972;
  
• Employee Polygraph Protection Act of 1988;
  
• Worker Adjustment and Retraining Notification Act;
  
• Family and Medical Leave Act of 1993;
  
• Chapter 43 of Title 38
  
• Section 1981, Section 1983, and Section 1985;
  
• Civil Rights Act of 1964;
  
• Fair Housing Act; and
  
• Americans with Disabilities Act of 1990.
  

If the pleadings in the case do not explicitly cite a violation of at least one of these statutes or an employment-based claim, one should consider carefully the risk of asserting unlawful discrimination to avail the taxpayer of the above-the-line deduction. It has been suggested by numerous tax professionals that taking an above-the-line deduction may well be a major IRS audit flag and may result in substantial underpayment penalties.

5. Proactive Measures to Increase After-Tax Recovery

Drafting the complaint or settlement agreement to consider the taxes is a strategy to avoid the double tax when the facts and circumstances allow. Another method involves contributing the claim to a Plaintiff Recovery Trust (PRT), a  charitable trust planning arrangement adapted for litigation. A plaintiff may also consider selling the claim to reduce taxes associated with a taxable recovery, but the sale must be valid and have substance.

6. The Difficulty of Addressing Taxes After Settlement

Tax planning to reduce plaintiff taxes on recoveries is possible while the case is ongoing and unresolved. However, opportunities are limited once the claim is resolved. Few accountants are familiar with plaintiff recovery taxation issues, and they often get involved only after the recovery when it’s too late.  There are post-settlement planning opportunities, but they aren’t as effective as addressing the tax issues before the case is resolved.

7. Key Takeaways: The Impact and Implications of the Double Tax Issue

The complexities of plaintiff recovery taxation, particularly the controversial double tax issue, have profound implications that affect plaintiffs, attorneys, and defendants alike. While the tax treatment of plaintiff recoveries remains a contested area, understanding the intricacies of these issues is crucial.

In conclusion, while the taxation of plaintiff recoveries and the double tax phenomena can be daunting, understanding these aspects is crucial for all parties involved in litigation. The Commissioner v. Banks case is a critical reference point in this complex tax landscape, highlighting the need for experienced advisors early in the process and well before settlement or adjudication.

The Commissioner v. Banks case underscores the importance of competent legal and tax advice for plaintiffs embarking on litigation.

To learn more about Commissioner v. Banks, its impacts, and solutions like the Plaintiff Recovery Trust, visit the Eastern Point Trust Company Resource Library of articles on various topics associated with Commissioner v. Banks.

Massachusetts Taxes on QSFs: What You Need to Know

Massachusetts is renowned for its rich history, but it also has a reputation for high taxes—something that directly impacts qualified settlement funds (QSFs). For the 2023 tax year, Massachusetts imposes a flat 5% tax on all QSF taxable income. For funds generating over $1 million, an additional 4% tax applies, significantly increasing the financial burden. These aggressive tax policies make Massachusetts one of the more costly states for establishing a QSF.

The Massachusetts Department of Revenue’s letter ruling 087 underscores these challenges. It clarifies that QSFs are taxed under Chapter 62 if they are established by a Massachusetts court or governmental authority, or if their assets were held within the state at any time during the tax year. The ruling’s broad interpretation means that even temporary ties to the state could result in tax obligations.

Compared to Massachusetts, many states offer more favorable tax environments for QSFs, with some imposing no taxes at all on trust-based funds. Careful jurisdiction selection can lead to substantial tax savings and better financial outcomes for claimants and trustees alike.

Establishing a QSF is a strategic decision that requires thoughtful planning, particularly when navigating state-specific tax laws. For QSFs in Massachusetts, understanding these tax implications and exploring alternative jurisdictions could mean the difference between a costly burden and a streamlined settlement process. Eastern Point Trust Company’s expertise in QSF management ensures clients can navigate these complexities and achieve optimal results.

Imagine a legal shield that not only consolidates multiple claims but also fiercely guards your privacy. Qualified settlement funds (QSFs), created under Section 468b of the Internal Revenue Code, are specialized tools designed for settling single-event, mass tort, and class action lawsuits. These tax-qualified entities allow related claims to be consolidated into a single, secure fund while ensuring the highest levels of privacy and security.

Privacy is not just a convenience—it's a cornerstone of a well-structured QSF. By existing as separate legal entities, QSFs protect sensitive information from prying eyes. This setup helps prevent adverse parties from inflating claims based on the knowledge of the fund's assets. Properly drafted QSFs also impose discovery limitations, reducing the scope of potential legal inquiries.

One of the most powerful features of QSFs is the ability to maintain confidentiality. The identities of claimants and details of the fund remain sealed, ensuring that transactions are not publicly accessible. Even in rare instances where fund existence is uncovered, a vigilant trustee can take decisive action to block discovery efforts, safeguarding the fund’s integrity.

An experienced QSF trustee is essential for maintaining privacy and protecting against discovery demands. Trustees can implement robust privacy policies, challenge discovery requests, and employ advanced legal strategies, such as decanting or jurisdictional tactics, to block unwarranted access. Their role is indispensable in ensuring the QSF remains a secure and confidential resource for claimants.

Qualified settlement funds are not just financial instruments; they are legal fortresses designed to protect claimants' interests. With robust privacy provisions and a dedicated trustee, QSFs minimize legal exposure and preserve confidentiality. Eastern Point Trust Company’s QSF 360 platform leads the industry in offering innovative solutions to safeguard privacy and defend against discovery demands.

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Imagine securing your client's financial future while reducing your own risks. Sounds too good to be true? Keep watching to discover how qualified settlement funds can transform your legal practice.

1. Qualified settlement funds or QSFs offer significant tax advantages, allowing defendants to take a current year tax deduction and plaintiffs to defer income recognition.

2. Unlike IOLTA accounts, QSFs earn interest for your clients, maximizing their financial benefits from the settlement.

3. A QSF provides clients valuable time to make informed financial decisions, such as opting for structured settlement annuities or setting up special needs trusts.

4. QSFs allow time to resolve liens, bankruptcy, and probate issues, ensuring clients receive their settlement funds free from potential disruptions and financial penalties.

5. By using a QSF, attorneys can avoid the constructive receipt of funds which can have tax implications for plaintiffs.

6. QSFs also help avoid triggering the economic benefit of funds, preventing unnecessary taxation for plaintiffgifts.

7. A QSF protects plaintiffs from the risk of defendant insolvency by securing settlement funds in advance, ensuring clients receive due compensation regardless of the defendant's financial status.

8. QSFs offer a flexible framework for distributing settlement proceeds, accommodating various client needs and preferences for financial planning.

9. By utilizing a QSF, attorneys can ensure compliance with legal and ethical standards, particularly with significant settlement amounts, which helps to safeguard client interests.

10. QSFs streamline the settlement process by allowing for the efficient allocation and management of funds, reducing administrative burdens on attorneys and ensuring a smoother experience for clients.

11. With online solutions like QSF 360, setting up a QSF is quick, easy, and low cost, providing accessible solutions in as little as one day.

Qualified settlement funds provide numerous benefits that can significantly enhance the settlement management process for attorneys and their clients, even in cases involving smaller settlements. Leverage the power of QSFs for better financial outcomes and peace of mind.

Fox Business reported on the growth of settlement planning, structured settlements, and Qualified Settlement Funds, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).

"Settling is first about the amount, but plaintiffs gain a lot by planning ahead."

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ESPN discussed the regularity of personal injury lawsuit settlements and related financial consequences, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).

"The tax and investment benefits of structuring greatly increase your settlement value."

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Bloomberg covered the increased use of structured settlements in personal injury cases, interviewing Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).

"Structured settlements are typically part of a larger settlement plan. In most cases, you can save tax, invest, and protect public benefits, but you have to make those decisions before signing."

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Create a Qualified Settlement Fund without the hassle of court approval. Keep watching to discover how. Did you know that various governmental entities, not just courts, can approve QSFs? This includes federal, state, and local agencies.

The IRS plays a crucial role in supervising QSFs, ensuring compliance through tax regulations and rules. To establish a QSF, parties must petition a governmental authority which then reviews the proposed trust agreement for compliance.

Beyond tax benefits, QSFs reduce administrative burdens, help resolve secondary disputes, and create flexibility.

Traditional court-established methods can be time consuming and costly, but platforms like QSF 360 offer quicker, more affordable solutions. The QSF administrator must file Form 1120 SF annually, ensuring all IRS requirements are met.

Qualified settlement funds operate on a calendar-year basis and begin life upon governmental authority approval regardless of funding status. From tax benefits to streamlined creation options, QSFs offer numerous advantages for both plaintiffs and defendants. Always consult with experienced QSF administration professionals for specific guidance.

Ready to simplify your settlement process? Let's get started.

What legal settlements are taxable and how to minimize taxation of settlement awards. Receiving a settlement from a lawsuit can provide financial relief, but can raise taxability questions. Understanding the tax implications of lawsuit settlements is crucial to maximize compensation, minimize tax impact, and avoid potential pitfalls with the Internal Revenue Service (IRS).

Generally, the primary law regarding the taxability of amounts received from lawsuit awards and settlements is Section 61 of the Internal Revenue Code (IRC). Section 104 excludes taxable income settlements and awards resulting from physical injuries. However, the relevant IRS guidance states that one should consider "the facts and circumstances surrounding each settlement payment" to determine the settlement proceeds' purpose accurately, as "not all amounts received from a judicial award or settlement are exempt from taxes."

Judicial awards and settlements can be divided into two groups to determine whether the associated payments are taxable or non-taxable. Once funds have been classified into one of these two groups, a further subdivision is made. Proceeds from personal physical injuries or sickness are generally excludable from gross income, but emotional distress recoveries are only excludable if they stem from physical injuries.

Strategies to minimize tax liability include allocating damages to non-taxable categories like physical injuries and medical expenses, and using qualified settlement funds (QSFs) to provide short-term tax deferral and flexibility.

Navigating the complex tax implications of lawsuit settlements requires guidance. Consulting with a settlement tax expert before finalizing a settlement agreement can provide valuable insights and help negotiate more favorable tax outcomes.

Qualified settlement funds are IRS qualified tax entities, and operate as statutory trusts. Critical to a successful QSF implementation is the administrator and associated administration, which streamlines the settlement process.

One common misconception about qualified settlement funds is that they are exclusively utilized for mass tort and class action settlements. QSFs are designed to resolve and satisfy claims, including those made before the fund is established, making them suitable for most types of torts, breach of contract, and environmental liability cases.

The second myth is that only plaintiffs benefit from qualified settlement funds, which overlooks the multiple advantages. Plaintiff attorneys can secure the settlement proceeds in a QSF, providing a safe space to work out a comprehensive settlement plan without pressure.

Contrary to the third myth that establishing a qualified settlement fund is a costly affair, QSF 360 offers the creation with a setup fee of only $500. The fourth myth surrounds the complexity of creating and administering QSFs and often deters parties from considering this as an efficient settlement solution.

Qualified administrators ensure the smooth operation and administration, including asset custody and oversight. Dispelling the fifth myth that qualified settlement funds offer limited tax advantages requires exploration of the tax benefits they present for defendants and plaintiffs. Upon contributing to a QSF, defendants are eligible for an immediate tax deduction, even if the funds have yet to be distributed to the plaintiffs. Plaintiffs can defer taxation on their settlement amounts until distribution.

The benefit of deferral can offer substantial financial planning advantages, allowing plaintiffs to potentially lower their tax obligations. Don't let the myths surrounding qualified settlement funds prevent you from utilizing this valuable tool. Be sure to like this video and subscribe to our channel for the latest.

Revenge porn litigation, bad behavior, abysmal tax treatment, and possible zero net recovery.

Revenge porn is not rare. It's estimated that one in eight social media users in the US are revenge porn targets. Revenge porn victims (RPVs) can pursue various types of civil causes of action, including intentional infliction of emotional distress, invasion of privacy, and defamation. Some states have civil laws allowing RPVs to seek compensatory damages.

Other states have specific laws allowing for a private cause of action against the person sharing the private images. Revenge porn damages include reputational harm, emotional distress, pain and suffering, lost income, medical expenses (including mental health care) and punitive damages. Unfortunately, because of the plaintiff double tax, and RPV suffers twice: first by the underlying violative action itself, and second by how their litigation recovery is taxed.

The double tax applies to many types of non-business litigation cases, including those involving no physical injuries, such as defamation, emotional distress, and punitive damages. The entire award is taxable income in those cases, but the related attorney fee cannot be deducted on the victim's tax return. An RPV might consider a plaintiff recovery trust, a specially designed trust that exists to hold the litigation claim.

If there is a successful recovery, the plaintiff recovery trust will significantly increase the RPV after tax recovery, perhaps by 100% or more depending on the recovery amount and where the RPV resides.

CNBC highlighted the importance of settlement planning and use of Qualified Settlement Funds in interviews with Eastern Point's Chief Trust Officer (Rachel McCrocklin) and Tax Strategist (Jeremy Babener).

“The right settlement planning can double what plaintiffs keep, even with the defense paying less.”

Recognizing when and how to use qualified settlement funds can significantly enhance the resolution process in your practice. Often referred to as a QSF, a qualified settlement fund is a tax-qualified statutory trust, which allows the defendant a full release when a settlement is paid into an account that acts as a temporary trust account. Those settlement funds can then be paid in cash, fund a structured settlement, attorney fee structure or assignment, and settle liens or allocation issues between parties.

A QSF created under Section 468 B is flexible and allows for a wide array of case types from class action, mass tort, even single-event and single-plaintiff cases. Moreover, most plaintiff's attorney has encountered a defense representative or attorney making things more difficult than necessary. The solution is to have the settlement paid into the QSF, thus removing the defense from the post-settlement process.

With Eastern Point Trust Company's QSF 360 platform, submitting a QSF can be easily accomplished in 15 minutes online for as little as $500 typically established within a single business day. The QSF is then ready to accept assets from a transferer, defendant, or defense carrier and provide the transferer with a complete release of liability.

Recognizing when and how to utilize qualified settlement funds can grow your practice, reduce risks, and produce improved financial outcomes for you and your clients. Eastern Point's QSF 360 platform makes the process quick, easy, and turnkey providing everything from the necessary documents to the required governmental approval and IRS registration. Be sure to like this video and subscribe to our channel for the latest videos.

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‍Qualified Settlement Funds are valuable financial mechanisms that offer tax benefits and flexibility in managing settlements across various disputes and litigation. 

Let's explore the proper naming conventions for a Qualified Settlement Fund. Appropriate naming conventions support the fund’s integrity and purpose. The 2024 IRS naming requirement states no QSF name may be longer than 64 alphanumeric characters. A governmental authority must approve and exercise jurisdiction over a potential QSF. That authority will have its own policies and requirements to ensure the name is not misleading. 

It is crucial to note that a QSF is not an interest on lawyer's trust account, nor an account owned by a law firm. No QSF should be labeled to imply that it is. However, including the term Qualified Settlement Fund, including the term QSF or using an FBO designation, or using the case name, plaintiff name, or plaintiff family name are safe harbors when naming a QSF. 

If a law firm uses or plans to use numerous Qualified Settlement Funds, standardizing naming conventions allows for more effective case management and quicker access to essential documents. A consistent naming convention improves transparency, avoids confusion during audits and legal reviews, and allows for the timely and accurate distribution of funds. When navigating QSFs, carefully selecting a compliant name is not merely a governmental requirement. It can remove barriers and eliminate questions. 

The need for Qualified Settlement Funds (QSFs) emerged in the 1980s. Insurance companies grew anxious that settlements made with an entity (or directly to an individual) would not qualify for immediate tax deductions. They lobbied Congress for the ability to deduct payments in the year of the settlement, instead of when the payments were distributed. Congress acted in 1986 by enacting Section 468B of the Internal Revenue Code, a Qualified Settlement Fund and 468B allows the defendant to receive an immediate tax deduction. 

With a QSF a defendant can transfer settlement funds, receive a current-year tax deduction, and obtain a release of claims. Also, plaintiffs may finalize the settlement terms without tax implications until the funds from the Qualified Settlement Fund are dispersed. This framework allows the QSF administrator to determine the allocation among the claimants. 

While Section 468B initially focused on designated settlement funds, it was later amended by Congress to grant the Treasury powers to develop regulations. Qualified Settlement Fund accounts were thus born by regulation. 

It is worth noting that in the past some insurance companies and large self-insured businesses have opposed the implementation of QSFs. However, numerous recent favorable court cases stipulating using QSFs have made such objections moot. 

To qualify a QSF must be established pursuant to an order from, or approval by, a governmental authority. Additionally, it must settle one or more disputed or undisputed claims, asserting at least one liability. All claims must stem from an event or a related series of events. Unrelated events are not allowed. Finally, the QSF must be created as a trust under state laws or the assets are segregated from those of the transfer and related parties. 

QSFs have provided many tax and other financial advantages for the defendant and the plaintiff for decades. To access more educational content on QSFs and various other trust products, visit EasternPointTrust.com/articles

Escrow accounts hold investor funds until the satisfaction of the offering, ensuring regulatory compliance to safeguard investor funds. These accounts hold funds raised from investors until the satisfaction of specific offering terms, ensuring compliance with regulatory requirements and safeguarding investor interests.

Opting for a trust company over a traditional bank account introduces the advantage of active independent oversight and FDIC insurance coverage up to $150 million per account. Using an escrow agent underscores the commitment to the prudent management of funds in private offerings.

Selecting an escrow agent to establish an account can typically take one to two weeks. Platforms like Eastern Point Trust Company can take as little as one business day. The escrow process also involves waiting for the investors transmittal of funds, either directly into the escrow or through a broker dealer, which is critical to proceed with breaking escrow. Once the terms of the offering have been satisfied, the offeror may request to break escrow and begin receiving funds.

The advantages of using a licensed vendor such as a trust company over a traditional bank account are measurable. Active independent oversight by a trust company adds a significant layer of security and integrity to these financial transactions, ensuring compliance with SEC and FINRA rules, directly contributing to investor confidence.

In the aftermath of winning or settling a lawsuit, it is essential to understand the potential federal and state income tax implications and the strategies you can employ to minimize your tax liability. In this comprehensive guide, we’ll explore various factors that affect the taxability of lawsuit settlements and provide actionable tips to help you navigate the complex world of taxes on settlement money.

Not all amounts received from a settlement are exempt from federal and state income taxes. In determining the taxability of a settlement, it’s crucial to consider the purpose for which the settlement or award was received. Settlements related to physical injuries or illnesses where there is observable bodily harm are generally not considered taxable by the IRS. While settlements for physical injuries or illnesses are tax exempt, emotional distress awards are typically subject to taxes. Settlements designated explicitly for medical expenses are generally not taxable. However, punitive damages, awarded to punish the defendant for their wrongdoing, are almost always taxable. The tax treatment of legal fees depends on the nature of the settlement.

Now, let’s explore some practical strategies to minimize your settlement tax liability.

1. Allocate damages appropriately.

2. Spread payments over time.

3. Consider Qualified Settlement Funds.

4. Take advantage of capital gains treatment.

5. Seek professional tax advice.

and

6. Eliminate the taxation of the attorney fee portion.

There is, however, an effective solution for eliminating double taxation on the attorney fee portion: the Plaintiff Recovery Trust (PRT). Keep in mind the PRT must be in place before the settlement or judicial award is finalized. Winning or settling a lawsuit is a significant achievement, but it’s crucial to understand the potential tax implications of your settlement. For the full guide or to learn more about Qualified Settlement Funds and the Plaintiff Recovery Trust, please visit easternpointtrust.com.

Overview

In the current digital and highly charged political age, the power of words has never been more salient.

It has become all too commonplace for words to be used as weapons for making untrue statements about a person or entity. A single untrue utterance can ripple through society casting shadows of controversy and sometimes engendering significant legal implications. Unfortunately, because of the plaintiff double tax, defamation victims suffered twice: first by the defamation itself and second by how their litigation recovery is taxed.

What is the Plaintiff Double Tax?

Commissioner v. Banks is a Supreme Court case that addressed the question of whether, for federal income tax purposes, the taxable components of a judgment or settlement paid to a taxpayer's attorney under a contingent fee agreement is taxable income to the taxpayer. Having to pay taxes on the total value of the award where the related attorney fee is not deductible is the plaintiff's double tax.

Assume a defamation victim lives in New York City and recovers $1,500,000 in non-physical injury and emotional distress damages and an additional $1,500,000 In punitive damages. The entire $3 million of gross settlement proceeds are taxable to the plaintiff, but none of the attorney fees are deductible. Worst yet, with New York city taxes, the plaintiff ends up with a net of only $300,000. After tax, that is only 10 cents on the dollar.

A defamation victim seeking to avoid this unfortunate scenario created by Banks might consider a plaintiff recovery trust (PRT), a specially designed trust that exists to hold the litigation claim. If there is a successful recovery, the PRT will significantly increase the net after-tax recovery, perhaps by 100% or more, depending on the recovery amount and where the defamation victim is domiciled.

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After the plaintiff double tax reduces her settlement, E. Jean Carroll may find herself shopping at Walmart.

As you may know, E. Jean Carroll was recently awarded $83 million in her defamation case against former President Donald J. Trump. After the case Ms. Carroll quipped to Rachel Maddow on MSNBC, “I have such great ideas for all the good I'm going to do with this money”.

“First thing Rachel, you and I are going to go shopping at Bergdorf’s.”

But wait, there is the double tax bite. As all of Ms. Carroll's settlement proceeds are taxable, It is therefore subject to the plaintiff's “double tax” under the Supreme Court's banks taxation ruling. Thus, if her attorney receives a typical 40% contingency fee, then, of the $83 million, she will only end up with approximately $7.5 million; just nine cents on the dollar. Even if her award is reduced on appeal, the same double taxation treatment applies.

The good news is that the Plaintiff Recovery Trust, sponsored by Eastern Point Trust Company and Forward Giving, can eliminate the double tax burden. It does so by eliminating the plaintiff's requirement to pay tax on the attorney fee portion of the settlement, thereby materially increasing the plaintiff's net after-tax proceeds.

Contact Eastern Point to learn how the Plaintiff Recovery Trust may increase your after tax recovery up to 150%.

Litigation settlements and awards are typically sent to the plaintiff attorneys’ IOLTA account, but that may not be the best option for you, the attorney, or your client. Funds received into your IOLTA expose you, as well as your clients, to financial disadvantages including immediate taxation on taxable elements, loss or reduction of government benefits, and loss of the ability to structure or assign the proceeds.

However, a Qualified Settlement Fund (also known as a QSF) solves these problems. Being IRS qualified, the QSF holds the settlement funds, tax deferred, while affording you and your clients time to plan. Unlike an IOLTA a QSF preserves your ability to structure or assign any portion of your fees. Additionally, a QSF preserves your client's ability to structure or fund a special needs or settlement protection trust.

Most importantly, a QSF does all this without triggering constructive receipt or loss of government benefits. Authorized by the IRS in 1993, QSFs have a 30-year track record of providing tax and financial advantages to clients and law firms alike. Whether a single event case with a single plaintiff or multi-claimant complex litigation, QSFs offer unmatched advantages and flexibilities.

Motivated by multiple advantages, large and small law firms nationwide are adopting QSFs at an ever-increasing rate.

Join the growing number of law firms using Qualified Settlement Funds. Reach out to us today. Discuss how the quick, easy, and affordable QSF 360 platform can benefit you, your firm and your clients.

Take a minute of your time and learn why creating a Qualified Settlement Fund with Eastern Point Trust Company allows you to leverage on of the most effective settlement tools with one of the industry's most reputable licensed trustee. Utilizing technology EPTC has revolutionized the QSF offering to ensure it is the highest quality product and service delivered at industry leading low cost price points and the quickest establishment and distribution timing in the industry. Find out more today by contact 855-222-7513 or visiting our website www.easternpointtrust.com.

Eastern Point Trust Company is your most complete, efficient, and economical Qualified Settlement Fund solution. Our patented technology allows us to perform tasks same day as opposed to weeks or even months with other providers in the industry.

Setup is simple. Click the “Get Started” button on our homepage, login, click “Create Trust”, and select the necessary information, easily broken out with explanations along the way. A one-click submission allows for instant receipt by our dedicated team of specialists. Your approval and accompanying documents are delivered securely in as little as one business day.

Benefits include same day distributions, tax reporting, real-time access to balances and statements, 24/7 access to an online document library, and more, all with security of a licensed trustee and fiduciary oversight at the industry’s most competitive price: $500 to establish and $500 to administer. Thank you for considering EPTC for your qualified settlement fund needs. Reach out to us with any questions. We look forward to working with you.

Qualified Settlement Funds (QSF) – Listicle of 12 Things to Know:

FOR IMMEDIATE RELEASE

[7/8/24] Joe Sharpe, ETPC President, explained, “QSFs are powerful financial tools to streamline and manage settlements, especially in complex cases. They provide tax benefits, flexibility, and efficient administration for all parties involved. With platforms like QSF 360™, creating and managing a QSF is quick, easy, and fully compliant. From establishing a QSF to understanding the roles of administrators, tax implications, and investment options, our comprehensive listicle covers all you need to know about these financial mechanisms.”

Learn the advantages of QSFs over other settlement structures, QSF regulatory oversight, and best practices for effective management. Make the most of your settlements with QSFs and ensure a smooth, compliant, and beneficial process.

Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore more and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete listicle and learn more about the advantages of QSFs, visit https://www.easternpointtrust.com/articles/qualified-settlement-funds-listicle-of-12-things-to-know.

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The co-designer of the Plaintiff Recovery Trust, Lawrence Eisenberg, a tax attorney and founder of Forward Giving, Inc., a 501(c)(3) charity, publishes in Tax Notes an article addressing the double taxation of settlements.

[7/16/2024] — In a thought-provoking article published in Tax Notes* Lawrence J. Eisenberg, an experienced tax attorney, describes the perplexing issues affecting individual plaintiffs in litigation recoveries and considers how those issues can be addressed, including by using a charitably-based trust-based solution. The article “The Individual Plaintiff Tax Trap — A Conundrum and a Solution” delves into the intricacies of the taxation of litigation recoveries and addresses methods to mitigate the adverse tax consequences some individual plaintiffs face.

Background

Eisenberg’s article highlights the strange and often inconsistent tax treatment of individual plaintiff litigation recoveries under the Internal Revenue Code. Despite the Supreme Court’s 2005 decision in “Commissioner v. Banks”, which held that plaintiffs must report the entire recovery as taxable income—including the portion payable to attorneys—many plaintiffs (and their attorneys and advisors) remain unaware of the potential tax pitfalls when such recoveries do not fall under tax-free categories, e.g., damages for physical injuries.

The Individual Plaintiff Tax Trap

The crux of the issue lies in the deductibility of attorney’s fees. Some recoveries are tax-free, so attorney fee deductibility is not relevant, or allow for an above-the-line deduction of these fees. Other recoveries can result a “double tax”, because in those situations, the attorney fee portion of the recovery is taxable, but the attorney fee itself is not deductible. This leads to significantly diminished net recoveries. Eisenberg’s article includes a detailed example demonstrating how a plaintiff’s net recovery can be less than 10% of the total amount, with the government and attorneys each receiving several times more than the plaintiff!

A Trust-Based Solution

To address this inequity, Eisenberg proposes that a plaintiff affected by the double tax create a Plaintiff Recovery Trust (PRT). A PRT allows plaintiffs to transfer their litigation claims to a specially designed split-interest charitable trust. By doing so, the litigation claim becomes an asset of the trust, and any recovery is received by the trust, which then pays the net recovery to the trust beneficiaries, including the plaintiff. The PRT uses ordinary trust law principles and aims to achieve fairer tax treatment by separating the ownership of the litigation claim from the individual plaintiff.

Key Benefits of the Plaintiff Recovery Trust

- Equitable Tax Treatment: By treating the litigation claim as a trust asset, a Plaintiff Recovery Trust results in the plaintiff not being taxed on the portion of the recovery paid to their attorneys.

- Structured recovery: The PRT trust structure allows for a more organized and potentially tax-efficient distribution of recoveries. (It also permits the use of structured settlements as part of the solution.)

- Charitable Component: The PRT includes a charitable beneficiary, adding a philanthropic dimension to the solution.

Conclusion

Eisenberg’s article is a call to action for tax professionals and litigation attorneys to recognize and address the unfair tax treatment many individual plaintiffs face. The PRT trust-based solution offers a way to alleviate the financial burden imposed by current tax law, so that plaintiffs retain a fair share of their recoveries.

See the full article on the taxation of settlement proceeds.

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Eastern Point Trust Company Unveils Comprehensive Guide on Navigating Post-Settlement Disputes and Complexities with Qualified Settlement Funds

[5/17/2024] — Eastern Point Trust Company is pleased to announce the release of a new guide designed to address the challenging intricacies of post-settlement litigation disputes. The guide focuses on utilizing Qualified Settlement Funds (QSFs), also known as 468B trusts, as a streamlined solution for efficient settlement fund management and dispute resolution.

It is not uncommon for secondary disputes to arise following a litigation settlement or court award. These disputes can range from family disagreements over their "fair share" to lawyers disputing fee splits, plaintiffs contesting attorney fees, and third-party lien holders emerging to stake claims against the litigation proceeds. Such complexities often hinder the settlement process and prolong the resolution.

Eastern Point Trust Company's newly released guide provides detailed insights into how QSFs can be employed to manage these disputes effectively. By offering a structured approach to fund management and tax compliance and providing the necessary time for informed decision-making, QSFs present a viable solution to post-settlement challenges.

Sam Kott, Vice President of Eastern Point Trust Company, emphasized the significance of the guide, stating, "This guide explores the advantages of QSFs, specifically their ability to address complex issues such as post-settlement disputes, secondary litigation, and lien resolution. The guide also provides direction on navigating post-settlement challenges and highlights the benefits of QSFs in achieving the best possible outcomes for all parties involved."

The guide delves into the various advantages of utilizing QSFs, including:

• Efficient Fund Management: QSFs ensure that settlement funds are FDIC-insured, reduce misallocation risks, and ensure fair distribution.
• Tax Compliance: QSFs help maintain compliance with tax regulations, thereby minimizing potential tax liabilities for the parties involved.
• Informed Decision-Making: By providing time and space for thoughtful decision-making, QSFs help to resolve disputes amicably and equitably.

Eastern Point Trust Company invites legal professionals, plaintiffs, and all interested parties to explore the guide and discover the transformative potential of QSFs in post-settlement dispute resolution. To read the complete guide and learn more about the advantages of QSFs, visit here.

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Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements.

FOR IMMEDIATE RELEASE

[5/17/2024] — Eastern Point is proud to announce the release of its latest publication, Unveiling the Complex World of Taxable and Tax-Free Settlements. This comprehensive guide delves into the intricate workings of taxable and non-taxable settlements, offering invaluable insights into compensatory damages, punitive damages, and the tax treatment of various settlement types.

Ms. Rachel McCrocklin, Eastern Point’s Chief Trust Officer, commented, “The guide provides a detailed understanding of the pivotal role of IRS Section 104 and the taxability of various settlement types. Our goal is to equip readers with the knowledge to make informed decisions and minimize potential tax liabilities.”

The guide explores strategic methods to minimize tax obligations on settlements, including leveraging structured settlement annuities, Plaintiff Recovery Trusts, and proper allocation in settlement agreements. It is an essential resource for individuals and businesses navigating the complex landscape of settlement taxation.

Arm yourself with knowledge, make informed decisions, and minimize potential tax liabilities with Eastern Point's newest guide.

For more information on Unveiling the Complex World of Taxable and Tax-Free Settlements, please visit https://www.easternpointtrust.com/articles/unveiling-tax-free-settlements-what-you-need-to-know or contact 855-222-7513.

CTRO

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A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.

FOR IMMEDIATE RELEASE

[5/2/2024] — A new comprehensive guide has emerged catering to those seeking to conduct private placements. This guide outlines the pivotal role of escrow accounts in private placements, providing a secure, regulated structure that safeguards investor assets and boosts investor confidence.

It reviews the advantages of choosing a trust company over a traditional bank account for escrow services, emphasizing active independent oversight that enhances transaction security and integrity.

Ned Armand, CEO, noted, “The guide also highlights the critical role of an escrow agent in managing funds prudently, ensuring a smooth progression of transactions under the regulatory frameworks.” Offerors of private equity and Reg D, Reg A, Reg A+, Reg CF, and Reg S offerings are encouraged to explore this guide, available on Eastern Point Trust Company.

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In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.

FOR IMMEDIATE RELEASE

[2/27/2024] — In today's dynamic business landscape, where environmental liabilities pose significant challenges, the Qualified Settlement Fund (QSF) emerges as a beacon of efficiency and reliability. Contrasting against traditional Environmental Remediation Trusts (ERT), Eastern Point’s QSF offers unparalleled advantages, revolutionizing the approach towards environmental liability management.

The Qualified Settlement Fund stands as a testament to expediency, with the capability to be established and funded within a mere business day, a stark contrast to the lengthy processes associated with ERTs. By swiftly assuming environmental liabilities from present and future claims under CERCLA, state, and local law, QSF ensures immediate action and resolution.

One of the most compelling aspects of QSF is its affordability, with establishment costs as low as $500. This cost-effectiveness, coupled with the tax advantages it provides over ERTs, makes QSF an attractive proposition for businesses seeking prudent financial solutions.

Flexibility is another hallmark of QSF, allowing for single-year or multi-year funding without any maximum duration constraints, ensuring adaptability to diverse business needs. Furthermore, the ability to hold real estate expands the horizons of asset management within the fund.

The benefits extend to tax optimization, with QSF accelerating the transferor's tax deduction for funds transferred to the current tax year, thereby enhancing financial planning and efficiency. Moreover, by shifting liability and associated funding transfers irrevocably to the QSF, businesses can streamline their balance sheets, mitigating risks and enhancing transparency.

In addition to these financial advantages, QSF facilitates seamless settlement agreements to capitate and resolve environmental liabilities, assuring regulators and interested parties of the irrevocable availability of funds for amelioration.

The transition to QSF not only eliminates future administrative burdens but also entrusts the fund's administration to a dedicated trustee, relieving businesses of operational complexities and enhancing focus on core activities.

In conclusion, the Qualified Settlement Fund stands as a beacon of innovation in environmental liability management, offering unmatched advantages over traditional Environmental Remediation Trusts. Its expediency, affordability, flexibility, and tax optimization capabilities redefine the landscape, empowering businesses to navigate environmental challenges with confidence and efficiency.

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Eastern Point Trust Company Announces Sponsorship Grants to National Forest Foundation

FOR IMMEDIATE RELEASE

[10/13/2022] — Eastern Point Trust Company (“EPTC”) announced that it entered into a sponsorship with the National Forest Foundation (“NFF”) to provide grant funding in support of NFF’s mission to restore and enhance our National Forests and Grasslands.

Working on behalf of the American public, the NFF leads forest conservation efforts and promotes responsible recreation. Its mission is founded on the belief that these lands, and all they provide, are an American treasure and vital to our communities’ health.

Rachel McCrocklin, Eastern Point’s Chief Client Officer, stated, “Eastern Point welcomes the opportunity to partner with the National Forest Foundation in support of its mission to improve and protect our national lands. A portion of Eastern Point’s revenue is dedicated to funding priority reforestation and enhanced wildlife habitat by supporting the National Forest Foundation’s 50 million for Forrest campaign.”

About Eastern Point Trust CompanyWith over three decades of trustee and trust administration experience, Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients.

Eastern Point has the benefit of practical experience and industry-leading technology, providing services to over 6,000 trusts with more than 20,000 users across the U.S. and internationally.

About The National Forest FoundationThe National Forest Foundation is the leading organization inspiring personal and meaningful connections to our National Forests, the centerpiece of America’s public lands.

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Eastern Point Trust provides services across the U.S. and internationally.

FOR IMMEDIATE RELEASE

[11/21/2022] — Eastern Point Trust Company (“EPTC”) announced recent successes of the Plaintiff Recovery Trust (“PRT”) solution in solving the Plaintiff Double Tax, which is the unfair result of 2017 legislation that can cut plaintiff recoveries in half.

Glen Armand, Eastern Point’s CEO, expressed, “Eastern Point’s gratitude for the testimonials of Mirena Umizaj, Joseph Di Gangi, Rebekah Reedy Miller, Susan Gleason, Jennifer White, Andy Rubenstein, and Zane Aubert. By utilizing the PRT, you are the catalyst for saving plaintiffs over $30 million of federal and state taxation.”

Mr. Armand also announced Joseph Tombs as Director of Plaintiff Recovery Trusts (PRT). Mr. Armand also noted, “The contributions of Lawrence Eisenberg and Jeremy Babener for partnering on our newest settlement solution.”

Settlement and financial planners and CPAs can learn and access resources on Eastern Point’s PRT Planner Page here: https://www.easternpointtrust.com/plaintiff-recovery-trust-for-planners

About Eastern Point Trust Company
Eastern Point is a world leader in trust innovation that provides fiduciary services to individuals, courts, and institutional clients across the U.S. and internationally.

With over three decades of trustee and trust administration experience, Eastern Point provides the benefits of practical experience, industry-leading technology, and innovation. Eastern Point Trust provides services across the U.S. and internationally.

About The Plaintiff Recovery Trust
The Plaintiff Recovery Trust is the proven solution to increase the amount plaintiffs keep in taxable cases. Without it, plaintiffs are taxed on the settlement proceeds paid to their lawyers. https://www.easternpointtrust.com/plaintiff-recovery-trust

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Qualified Settlement Funds (QSFs), a 468B trust, are valuable and crucial in managing litigation settlements efficiently and effectively. "QSF", which stands for "Qualified Settlement Fund", is a fund established as a trust or account established to hold settlement proceeds from litigation. According to the definition under Treasury Regulations, it is an escrow account, trust, or fund established according to an order of or approved by a government authority to resolve or satisfy claims.

This comprehensive infographic guide explains the essential aspects of Qualified Settlement Funds:

• What is a Qualified Settlement Fund and its purpose
• Key benefits
• Eligibility requirements
• The approval process
• How to create a Qualified Settlement Fund
• Qualified Settlement Fund tax treatment and tax reporting
• Investment options
• QSF administration process
• Qualified Settlement Fund Administrator role and responsibilities
• Procedures for making distributions
• Compliance and regulatory matters
• Complex cases
• Minor's Settlements

The guide provides valuable insights, tips, and rules of thumb for legal professionals, claimants, and other stakeholders about how a QSF account benefits the settlement process. A QSF offers many advantages, including immediate tax deduction for defendants, tax deferral for claimants, and efficient management of settlement proceeds. QSFs are commonly used in class action lawsuits, mass tort litigation, and cases with multiple claimants, but can also provide benefits in single claimant cases.

Setting up a QSF involves petitioning a government authority and appointing a QSF Administrator to oversee the fund. The QSF Administrator, often a platform like QSF 360, is responsible for obtaining an EIN, handling tax reporting, overseeing QSF administration, and making distributions to claimants. Online QSF portals streamline the Qualified Settlement Fund administration process.

Partnering with an experienced QSF Administrator is essential. Services like QSF 360 from specialize in QSFs for both large and small cases and can help ensure compliance with IRC § 1.468B-1 and other regulations.

In summary, Qualified Settlement Funds are a powerful tool for managing settlement proceeds. With proper planning and administration, QSFs provide significant tax benefits, enable efficient distribution of litigation proceeds, and help bring litigation closure. Understanding what is QSF and how to leverage QSFs is invaluable for any legal professional involved in today's settlements.

Wrongful Death Case Study

In the heart of Georgia, a family’s world shattered when John Doe, a 34-year-old father, tragically lost his life due to the negligence of his employer. Left behind were his grieving spouse and minor children, including a 12-year-old daughter, Emily. As the family grappled with their loss, they faced the daunting task of navigating a complex legal landscape. Such a circumstance is where the power of a Qualified Settlement Fund (QSF) came into play, offering hope for Emily’s future.

The Legal Labyrinth

The wrongful death suit resulted in a $3 million settlement, bringing relief and responsibility. Under Georgia law, the spouse and children were equal beneficiaries, with the spouse guaranteed at least one-third of the settlement. However, the presence of a minor beneficiary added complexity to the case.

The family’s attorney recognized the need for a solution to protect Emily’s interests while allowing for thoughtful, long-term financial planning. “In cases involving minors, we must think beyond immediate needs,” the lawyer noted. “We needed a mechanism to give us time to craft a comprehensive plan for Emily’s future.”

Opting for the Qualified Settlement Fund

Emily’s lawyer proposed the establishment of a Section 468B Qualified Settlement Fund, a legal tool that would prove invaluable in this case. The QSF offered several key advantages:

1. Protection of Emily’s Interests: The fund acted as a safeguard, holding Emily’s portion of the settlement in FDIC-insured money market accounts until the supervising court approves the minors’ settlement.
2. Flexibility in Distribution: The QSF allowed for careful planning of how and when funds are available, considering Emily’s evolving needs as she grew.
3. Long-term Financial Planning: With the pressure of immediate distribution removed, the family had time to consult with financial advisors and structure the settlement optimally.
4. Tax Benefits: The defendant could fund the QSF, claim their tax deduction, and remove themselves from the post-settlement process, simplifying matters for all parties.

What is a QSF?

A Qualified Settlement Fund, established under IRS Section 1.468B-1, is a financial and legal mechanism used primarily in settling lawsuits, particularly cases involving multiple claimants. It’s a settlement trust account established to receive and administer funds from a defendant in a legal settlement.

Key Features:

1. Temporary Holding: A QSF acts as a temporary repository for settlement funds.
2. Tax Benefits: It offers potential tax advantages for both defendants and claimants.
3. Time Flexibility: Claimants gain more time to make informed decisions about their settlement proceeds.
4. Protection: It provides a layer of protection for settlement funds.

How QSF Contributes to Crafting a Secure Future

1. When dealing with legal settlements, a Qualified Settlement Fund can be instrumental in ensuring a more secure financial future:
2. Informed Decision-Making: By allowing claimants more planning time, 468B trust enables better financial decisions.
3. Professional Management: Funds in a 468B Settlement Fund are typically managed by experienced trustees and QSF Administrators.
4. Structured Settlements: QSFs facilitate the creation of structured settlements, which can provide long-term financial stability.
5. Risk Mitigation: Experienced and licensed Qualified Settlement Fund administrators mitigate risks associated with large settlement payments and the related tax implications.

Integrating QSF in Your Financial Planning

Considering a Qualified Settlement Fund as part of your strategy for crafting a secure future can be beneficial when involved in a legal settlement. It’s essential to consult with legal and financial professionals to determine if a QSF aligns with your specific situation and long-term financial goals.

Crafting a Secure Future for Emily

With the plan in place and the luxury of time to plan, Emily’s guardian, her mother, worked closely with financial advisors to create a comprehensive plan. They explored various options, including:

• Structured Settlements: A portion of Emily’s funds was allocated to a structured settlement, providing guaranteed periodic payments throughout her college years and beyond.
• Education Trust: Creating an education trust to cover future tuition and related expenses, ensuring Emily’s academic aspirations have funding.
• Health and Wellness Fund: Allocation of funds to address the potential long-term emotional impact of losing a parent and the associated counseling or health-related needs, for potential.

“The 468B Settlement Trust gave us breathing room,” Emily’s mother shared. “Instead of making rushed decisions, we could carefully consider Emily’s future and make choices that truly honored her father’s memory.”

Securing a Future with a QSF

The implementation of the QSF, in this example case, serves as a model for similar situations. It demonstrates how thoughtful legal and financial planning can turn a tragedy into an opportunity for long-term security and growth.

The lawyer reflected on the case: “By utilizing a QSF, we were able to transform a moment of profound loss into a foundation for Emily’s future. It’s a powerful reminder of how the right legal and tax tools can make a real difference in people’s lives.”

As Emily grows, she’ll have the financial resources she needs to pursue her dreams, thanks to the foresight and care taken in managing her settlement via a Qualified Settlement Fund. While nothing can replace the loss of a parent, the security provided by this approach offers some solace and hope for the future.

Using a Qualified Settlement Fund can be a game-changer for families facing similar circumstances. It provides the time and flexibility needed to make informed decisions, ensuring that the interests of minor beneficiaries are protected and nurtured for years to come.

Learn more about how Qualified Settlement Funds benefit the minor’s settlement process.

Contact a QSF 360 specialist today at (855) 979-0322.